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Consequences for residential landlords following recent judgement

The Court of Appeal recently handed down judgment in this case where it grappled with one of the remaining loopholes created by sections 213-215 of the Housing Act 2004 (the 2004 Act), as amended by the Localism Act 2011, and flagged as a potential issue in the decision of Superstrike v Rodrigues [2013] 1 WLR 3848, namely:

How would section 215 of the 2004 Act apply to landlords serving section 21 notices after April 2012 where a deposit is taken and where the tenancy agreement became a statutory periodic agreement prior to 6 April 2007?

In Charalambous, the Court of Appeal held that, even where a tenancy deposit was taken by a landlord and that tenancy subsequently became a statutory periodic tenancy prior to the 2004 Act coming into force, a landlord is still under an obligation to comply with sections 213-215 and cannot serve a section 21 notice if they have failed to protect the deposit or rectified the error.

Background

The intention of the 2004 Act with regard to tenancy deposits was twofold: firstly, to stop landlords from playing the system and refusing to return deposits to tenants at the end of a tenancy (knowing that the time and money required to recover the deposit was likely to be disproportionate to the amount in question); and secondly, to bring about a low cost method of resolving end of tenancy disputes regarding tenant deposits.

Slowly but surely, the Court of Appeal proceeded to erode the potency of the penalties imposed by section 214 of the 2004 Act. Firstly, it held that landlords have until the date of the hearing of a tenant’s claim under section 214 to comply with deposit obligations under the 2004 Act (Tiensia v Vision Enterprises Ltd [2010] EWCA Civ 1224); and, secondly, refusing to allow tenants to bring a claim under section 214 after the tenancy had terminated (Gladehurst Properties v Hashemi [2011] EWCA Civ).

Parliament attempted to redress these issues by inserting various provisions into the Localism Act 2011. Chief amongst these with regard to the decision in Charalambous was that landlords in breach of the 2004 Act tenancy deposit rules (with a pre-existing tenancy in place) were given an “amenity period” of 30 days from 6 April 2012 in which to comply with the changes.

Two of the lacunas created by these changes were:

what are a landlord’s obligations with deposits taken before the 2004 Act came into force where the tenancy has subsequently became a statutory periodic tenancy after 6 April 2007?; and

what are a landlord’s obligations when both occur prior to the 2004 Act coming into force?

The first of those problems was decided in Superstrike where the Court of Appeal held that section 215 of the Housing Act 2004 applied to deposits received before 6 April 2007 but where the statutory periodic tenancy arose after the statute came into force. Here the deposit was deemed to have been “received” again when the statutory periodic tenancy arose and the landlord was under an obligation to protect the same within 30 days.

The decision in Charalambous has attempted to deal with the second problem. In this case, the tenants paid a deposit in 2002 (well before the 2004 Act came into force). The tenancy was subsequently renewed on a couple of occasions before becoming a statutory periodic tenancy in August 2005.

The landlord served notice under section 21 of the Housing Act 1988 Act in October 2012, requiring the tenants to give possession.

The arguments of the parties focused on the wording of section 215 (1)(a) 2004 Act which provides that a landlord may not serve a section 21 notice where “the deposit is not being held in accordance with an authorised scheme”. The tenants claimed that, as the deposit had never been protected under a statutory scheme, the notice was invalid.

The Court of Appeal agreed with the tenants, and held that section 215(1)(a) of the 2004 Act helps ensure that tenant deposits are protected so that landlords not otherwise caught by sections 213 to 215 of the Housing Act 2004 are nevertheless required to place the deposit in an authorised scheme if they wish to serve a section 21 notice.

Accordingly, the safest course for Ms Ng, and other landlords in a similar situation, would be to return the deposit to the tenant before serving a section 21 notice.